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    How To Diversify Commercial Real Estate Investment portfolio

    • 5 min read
    • Last Modified Date: February 6, 2024
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    • Through diversifying your portfolio, you invest in a number of different securities and types of assets, making sure that you don’t put all your eggs in one basket and that your overall return doesn’t depend too much on any single investment.
    • Savvy long-term investors understand this, and various types of stocks and bonds play a crucial role in diversify commercial real estate investment portfolios.
    • However, there’s also an often overlooked gem: Commercial real estate. 
    • Let’s delve into the strategies and benefits of building a diversified portfolio through investing in commercial real estate

    Commercial Real Estate: The Gem Your Portfolio is Missing?

    • As per Statista’s Outlook report, the commercial real estate market in India hit US$4.85 trillion in 2023. The compound annual growth rate of the market is projected to be about 11.50% yearly (2023-2028).
    • This means the commercial real estate industry is projected to reach a market size of US$8.36 trillion by 2028. 
    • If you’ve been scratching your head and pondering upon new alternative investment opportunities in India, look no further: India’s booming commercial real estate sector has got you covered. 

    Importance of Diversify Commercial Real Estate Investment Portfolio : Beyond Traditional Investments

    • Real estate has often been hailed as the poster child for stable and secure investments. However, residential property prices are often in a bubble, as seen in the global housing crisis of 2008, and relying solely on residential properties can expose investors to market fluctuations. 
    • On top of this, investing in residential properties requires large scale upfront money, which many investors might not be able to provide, and there is less flexibility when it comes to liquidity and exit strategies. 
    • Over the past few years, the importance of diversification in real estate has become evident. Commercial real estate brings with it an entirely different dimension, often providing higher yields and returns with lower risk and volatility. 


    Building A Diversify Commercial Real Estate Investment Portfolio: Achieving Balance

    • Achieving balance is an art, and in the real estate world, it entails understanding different property types, locations, and market trends. Investors can tap into different market cycles by diversifying across commercial properties, ensuring a robust and resilient portfolio.
    • Developing effective investment strategies necessitates a thorough understanding of market dynamics. Commercial real estate provides additional income diversification through rental yields and the potential for capital appreciation.
    • These assets can act as portfolio stabilisers, offsetting the volatility associated with other investment classes.

    Benefits of Commercial Property Diversification: What are the Advantages? 

    Better Protection From Market Fluctuations

    One of the biggest advantages of commercial properties is that they often have longer leases and much more stable cash flows. This provides a buffer against market fluctuations. 

    Stability is a core pillar of risk management, which is the principle behind diversifying your portfolio. This is helpful for investors to remain confident during uncertain times. 

    Portfolio Management

    A diversified real estate portfolio contains a mixture of residential and commercial properties: this allows for efficient management. Investors can personalise their portfolios; tailoring them to align with their risk tolerance, investment horizon, and financial goals. 

    How To Choose The Best Commercial Property For Your Portfolio

    Just like residential properties come in all sorts of shapes and sizes, it is crucial to understand the nuances of different commercial property types. You have your commercial office spaces in bustling city centres, warehouses in industrial cities and logistics hubs, and so on. 

    Each asset class brings with it a number of opportunities and challenges. 

    The Rise of Co Working Spaces

    • While coworking spaces are a recent phenomenon, in just a short span of time they have shown great growth. Based on an Upsuite report, demand for coworking spaces is up by 40%, and the market for shared housing spaces is expected to cross the 80 million square feet mark by the close of 2025. 
    • Investors should take note of the upsurge in the coworking space. Co-working spaces provide great opportunities to earn rental income by investment through fractional or joint ownership models, commercial leasing and subleasing, and so on. And this trend shows no sign of stopping any time soon.
    • With more opportunities for investors, the segment will become more profitable for growth. However, operators must keep the cost-effective factor in mind. Tenants may find it difficult to rent in some of the most popular areas as demand grows.
    • However, the industry must strive to provide service to customers, earn their trust, and provide the best solution for clients.

    Tier 2 Cities: Unlocking the Potential of Commercial Real Estate 

    • Investors are increasingly looking to turn to tier 2 cities in India such as Vizag, Kochi, Lucknow, and so on for opportunities in investing in commercial real estate. 
    • These cities have lower populations but offer affordability, as property prices are significantly lower than in metro cities.
    • Infrastructure development is on the rise due to the government’s smart cities program, and the growing middle class population in these cities has created huge demand for housing, shopping complexes, entertainment centres, you name it. 
    • Government assistance in the form of investor-friendly policies, tax breaks, and regulatory reforms adds to Tier 2 cities’ appeal.
    • The improved quality of life, as evidenced by less traffic and cleaner environments, adds to their allure.
    • Diversification becomes a compelling reason to invest in these cities, allowing investors to diversify their portfolios while also tapping into the emerging market.

    Bottom Line 

    To say that commercial real estate is a shrewd choice for building a diversified portfolio would be an understatement. By doing proper research and understanding the intricacies of various commercial property types, as well as the type of alternative investment model you want to opt for, investors can navigate the dynamic commercial real estate landscape with ease and confidence. 

    Assetmonk, a new age alternative investment platform specialising in commercial real estate and fractional ownership of high end commercial properties, is always ready to guide investors on their journey towards building a well-rounded and prosperous portfolio. 

    Read More

    Benefits of Investing in Alternative Assets for Indian Investors

    Diversify Your Portfolio With Alternative Investments In India

    FAQs

    Q: Why should you look to diversify your portfolio?

    A: Diversification spreads risk, making you less vulnerable to market fluctuations.

    Q: What is CRE?

    A: Commercial real estate (CRE) is the investment in properties such as offices, retail spaces, and industrial complexes for income or capital appreciation.

    Q: What factors make Tier 2 cities appealing for CRE investment?

    A: Tier 2 cities are appealing due to their affordability, infrastructure development, and government support.

    Q: Can commercial portfolios help in building a good portfolio?

    A: Commercial properties generate consistent cash flows, acting as a hedge against market volatility.

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